Italy’s constitutional reform referendum: What you need to know

With Renzi declaring that he will resign if the electorate rejects his reforms, the referendum is now widely seen as a vote of confidence on the government itself.

After Brexit and the US elections, many commentators have portrayed the upcoming Italian referendum as another battle in the ongoing struggle between populism and ‘the establishment’. Others see it as a litmus test for Renzi’s government, in which the result will either reinforce his political standing or bring about another period of uncertainty in Italian politics.

What follows is an overview of the reasons for holding this vote, the positions of the main political parties and the potential outcomes of the result

Aims of the reforms:

Reduce political instability and gridlock

By abolishing the “bicameralismo perfetto”, the reforms would give the Lower House sole responsibility for most legislation, including the appointment of governments. This, combined with a new electoral law which guarantees election winners a wide majority in the Lower House, aims at putting an end to unstable governments, while reducing the powers of the Upper House would prevent it from blocking legislation passed by the Lower House.

Reduce bureaucracy and the costs of politics

This would be done by increasing the power of the central government on issues that now are dealt with by the regions, and by cutting the number of Senators from 315 to 100.

With these words, Italy’s then Head of State called on the Italian Parliament to undertake a long-awaited process of constitutional overhaul. In response, Parliament pledged to remove of one of the main causes of Italy’s institutional paralysis: the “bicameralismo perfetto”, a system in which every piece of legislation has to be approved by both Houses of Parliament.

Nearly 1000 days later, the Parliament has kept its promise. Under the initiative of PM Renzi, the Parliament approved, with a 61% majority, a package of reforms to change 47 articles of the Constitution. However, as the majority fell short of the two thirds requirement for direct implementation, the bill must be confirmed or rejected by the people in a popular referendum.

What are the pros and cons?

Proponents of the reform consider these measures as the medicine Italy has long needed. Curbing the power of the Senate and giving the power of appointing the Government exclusively to the Lower House would release Italy from its notorious political instability. Likewise, separating the overlapping responsibilities between the state and regions should reduce inefficiencies and improve confidence among domestic businesses and foreign investors.

However, an increasing number of critics worry that the reforms would concentrate too much power in the hands of the prime minister, giving him the authority to hand-pick the party’s election candidates, who would thus be less accountable to their constituencies.

Slow economic recovery, banking troubles, in-fighting among political parties, and the rise in anti-establishment sentiments have dented the government’s popularity.

The debate, however, goes beyond the components of the reform proposals. Slow economic recovery, banking troubles, in-fighting among political parties, and the rise in anti-establishment sentiments have dented the government’s popularity. With Renzi declaring that he will resign if the electorate rejects his reforms, the referendum is now widely seen as a vote of confidence on the government itself.

Where do the parties stand?

Partito Democratico

Prime Minister Renzi’s party advocates the Yes cause, portraying itself as courageous for undertaking reforms that other parties - in spite of holding larger majorities - had continuously avoided. The main point of Renzi’s campaign has been to emphasise that a No vote is a vote for the status quo – a continuation of instability, gridlock and bureaucracy.

It is worth noting that a minority within his party has turned its back on the Prime Minister and endorsed the No cause, being unsatisfied by the new electoral law and by the way in which the Prime Minister has run the party and marginalized dissenters.

Forza Italia

Berlusconi’s party’s stance has been controversial throughout the entire process of constitutional reform, which began with Forza Italia striking a deal on an institutional reform package with Partito Democratico back in 2014. Therefore, while it now campaigns against the reform bill, the party was instrumental in shaping the constitutional changes that it now opposes.

This turnaround stems from the government’s decision to sideline Berlusconi in choosing the new President, Sergio Mattarella, in 2015, which marked the end of the fragile pact upon which the common reform agenda was established. Despite this break, Berlusconi remains wary of triggering a political crisis in the event of a No victory, conscious that Forza Italia’s popularity has been consistently waning, with the party arguably unfit to face elections in the short-term.

Five Star Movement

The biggest opposition group has been the only party voicing its criticism of the reform since the very beginning. The Movement argues against the centralisation of powers that the constitutional overhaul would entail, as well as the alleged illegitimacy of the new Senate, deemed anti-democratic as it will be composed only by nominated politicians. However, their objection is not just a principled defence of the constitution.

When Renzi decided to effectively turn the referendum into a mid-term vote on his government, he provided the Movement with a golden opportunity to enhance its anti-establishment brand by railing against the government’s legitimacy. Five Star now enjoys a win-win scenario: If it defeats the reforms it can take the credit and call for immediate elections; while if the reforms pass, the new “two rounds” electoral law would actually increase the party’s chance to get into government following the general elections in 2018.

Lega Nord

Lega Nord sees the Italian referendum as the natural continuation of the anti-establishment revolts triggered by Brexit and continued with the U.S elections. Campaigning for No is thus seen as a way for the party to ride this wave of populism. With the centre-right in disarray, Matteo Salvini may even consider standing for prime minister if Renzi is unseated.

As a long and brutal campaign comes to an end, polls currently place the No side ahead, but the situation is still “too close to call”.

What to expect in the event of a ‘Yes’ victory

The beginning of 2017 will see Italy in the spotlight as it joins the UN Security Council and hosts both the Treaty of Rome 60th anniversary celebrations and the G7 summit at the end of May. If Renzi is successful, therefore, he will have ample opportunity to showcase his victory to the world, demonstrating to international partners, markets and investors that Italy is capable of reform. Expect him to also take advantage of the removal of bureaucratic impediments by introducing new legislation to revive Italy’s weak growth rate and restructure its disrupted banking system.

There is also a significant chance that Renzi will capitalize on his momentum and call an early general election. If he can defeat the unlikely coalition of hard left and hard right political forces that have opposed his reform bill, he will feel very confident about defeating them in isolation in a general election. And if the main aim of the reform is abolishing the equal powers between the two chambers, there would be little point in continuing in government with a Senate which has become unconstitutional overnight.

What to expect in the event of a ‘No’ victory

A degree of political and economic turmoil is to be expected if the reforms are defeated, with markets likely to see the vote as demonstrative of Italy’s inability to reform. This would widen the spread between yields on Italian and German government bonds, increasing the burden of the already deteriorated Italian debt, and discouraging foreign investors from operating in Italian markets.

These effects would time take to materialize, however. The most immediate effect would be the political instability generated by Renzi’s pledge to resign as Prime Minister. Given the dense international schedule, President Mattarella could persuade him to stay on a temporary basis, but this would arguably not fit his assertive personality. It is more likely, therefore, that he will resign as Prime Minister but retain his role as party secretary, in order to deal with the breakaway left-wing minority within Partito Democratico and run again for Prime Minister in 2018.

Early elections can be ruled out, as re-drafting a satisfactory electoral law to replace the proposal in the defeated reforms will take time.

In this case, Mattarella would likely install a temporary caretaker government. Early elections can be ruled out, as re-drafting a satisfactory electoral law to replace the proposal in the defeated reforms will take time.

As for the Five Star Movement, this is a key moment for their political project. After their electoral victories in Rome and Turin, many believe that a No win would pave the way for the Movement to emerge as the primary political force in the country. But if no early elections are called, they may lose some of the momentum gained from this win. The party is already facing tough criticism for their “inexperienced” administration of their cities, particularly in Rome, and if they cannot turn this around in the next 18 months, the electorate is unlikely to trust them to run the country.